Indonesia: Yield & Stock Market

Indonesia – a truly beautiful country.

KT

Indonesia’s stock market is even more beautiful, rising more than 4.7x since 2008:

JCI.png

There are many factors that may create thrust for a particular stock market. One such factor is the level of interest rate in the country. From a common sense point of view, we may be able to generalise the fact that the required equity rate of return is expected to fall in tandem with a falling interest rate environment, thereby this may potentially boost the valuation of equity market. The following chart compares the Jakarta Composite Index (JCI) and 10Y Indonesian Government Bond Yield (since Jan 05 – 19 Oct 2017), of which a negative relationship  appears to exist between the equity index and the bond yield.

Time Series_JCI vs 10Y Indo Gov Bond Yield.png

Regressing The Relationship

Statistical relationship is quite significant between the yield and the equity index:

Regression Relationship.png

Based on the above regression analysis / relationship, at current 10Y bond yield of 6.618%, the predicted forecast JCI value is 4,601 which is relatively lower than current index point of 5,929 but it is nevertheless within the 95% confidence range of between 2,844 –  6,357 points.

Forecast.png

A key question to ponder:

Will the Indonesian central bank continue to lower the rate?

Unless there is recovery in domestic consumption / lending, Indonesian Central Bank may continue to cut rates to boost the economy. However, if  global QE is to end / moderate, we may actually see a rising yield environment due to potential outflow of foreign funds.

Aug 17 – JAKARTA: Indonesia’s central bank on Tuesday cut its benchmark policy rate for the first time since October, unexpectedly pulling the trigger in a bid to boost sluggish lending and growth in South-East Asia’s biggest economy.

In another effort to stoke lending and consumption, Bank Indonesia (BI) also said it would change downpayments on automotive and home loans and review bank liquidity rules.

“The theme of this monetary policy meeting was to lower the benchmark policy rate due to stability and to support economic recovery,” BI governor Agus Martowardojo told reporters. Martowardojo said external risks, including those involving policy of the US Federal Reserve, had been reduced. BI cut the 7-day reverse repurchase rate to 4.50 % and lowered two other main policy rates.

Indonesia becomes the second major Asian economy to cut its policy rate this year after India on Aug 2. In a Reuters poll, 19 out of 20 economists forecast that BI would hold the key rate at 4.75% out of concern changes in other countries’ monetary policies could hurt the rupiah .
Read more at http://www.thestar.com.my/business/business-news/2017/08/22/indonesia-c-bank-surprises-with-rate-cut-in-bid-to-spur-growth/#0T7SHw67ie9IKweZ.99

 

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

Tactical Screening: Indonesia

Screening for potential undervalued securities in Indonesia

We intend to employ a similar equity screening methodology that was undertaken for the Malaysian market (See Link) to screen for potentially undervalued securities listed on the Jakarta Stock Exchange (JSE). Recap, our screening methodology is predominantly based on the formulae of justified price-to-earnings (P/E) and price-to-book (P/B) ratios. Our computation of justified P/E and P/B for Indonesia is shown as follows:

ID_Oct16_Computation.png

Based on the above, the results of our screening are shown as follows:

ID_Oct16_Results.png

Lamicitra Nusantara Tbk PT

PT Lamicitra Nusantara Tbk is an Indonesia-based company engaged in the development and management of real estate and property. The Company’s business activities are the management of container depot, hospitality, trading, and development and operation of real estate and property. Some of the Company’s projects include Tanjung Emas Export Processing Zone, Jembatan Merah Plaza 1 and 2, Ruko Jembatan Merah, Hotel Tunjungan Crystal, Depo Peti Kemas, Darmo Hill Real Estate, Pusat Grosir Surabaya and Tunjungan Electronic Centre. The Company’s subsidiaries are PT Tunjungan Crystal Hotel, PT Dharmabhakti Adijaya, PT Wiratangguh Dharmacitra, PT Penta Persada Pertiwi and PT Persada Alam Nusantara. Its head office is located in Surabaya, Indonesia. Read more

ID_Oct16_Coy.png

Purely from a technical perspective, it appears that PT Lamicitra Nusantara is currently on a downward trend, after touching a peak of more than IDR500. It has fallen below its 20D-MA support line as well as a bearish MACD indicator. Potential support line in between IDR260-IDR300 per share.

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES OR RELATED INSTRUMENTS MENTIONED ABOVE.

Betting On Indonesia

Indonesia does present growth opportunities, given the sheer size of its population. If I would ever invest in Indonesia, it will be in its consumer sector. One such potential counter in this sector is PT Fast Food Indonesia Tbk.

PT Fast Food Indonesia Tbk engages in the food and restaurant business. The firm is the franchise holder of KFC brand in Indonesia. It operates through the following segments: Jakarta Restaurant Support Center (RSC), Medan RSC, Makassar RSC, Palembang RSC, Bandung RSC, and Others RSC. Its products are grouped into categories such as Menu Goceng, Menu Praktis, and Package Meals. Menu Goceng includes food items such as Mocha Float, and Burger Deluxe. Menu Praktis offers food items that are easy to take away or consumed along the way such as Colonel Burger, Twister, Colonel Yakiniku, and Fish Fillet. Package Meals provides meal saving combinations such as Super Panas, KFC Attack, and Super Mantap. The company was founded on June 19, 1978 and is headquartered in Jakarta, Indonesia.

FastFood_GP

What happen to its share price: Peaked at close to 3,500 (Jul 13) and has since descended to about 1,065 (1 Apr 2016). One wonders what could have possibly caused such dramatic decline over this period. Coincidentally, we also saw the sharp depreciation in the Indonesian Rupiah since mid July 2013 as well.

Rupiah Graph.png

Without conducting a detailed fundamental analysis as well as macro analysis on Indonesia, let’s explore the relationship between the share price of Fast Food and IDR.

A simple regression analysis was performed using historical data (since 1 Jan 2012) and the results of our analysis are summarised as follows:

 

Model Fast Food.png

Based on the above results, the statistical results appear significant. The relationship is defined as : Share Price (IDR) of Fast Food = 6,498.40 -0.374273 (Exchange rate in IDR/USD)

Comparison between actual share price of Fast Food vs predicted share price (based on the above formula):

FastFood_PredictedvsActual.png

The above graph shows that the actual share price does not significantly deviate from its predicted share price. Currently, it appears that there is potential upside as Fast Food’s last traded price (IDR1,065) is relatively lower than (i) its predicted share price as well as (ii) below 95% confidence interval’s lower bound. At current exchange rate of IDR/USD of 13,137, the predicted share price of Fast Food is IDR1,581 whilst the 95% confidence interval range is between IDR1,143 and IDR2,019.

What about the Indonesian Economy & Rupiah? Can it potentially go lower?

The Indonesian economy is poised to return to a gradual growth path after five years of decelerating growth.The Asian Development Bank (ADB) on Wednesday (Mar 30) projected Southeast Asia’s largest economy to grow by 5.2 per cent in 2016 – up from 4.8 per cent in 2015. http://www.channelnewsasia.com/news/business/indonesia-economy-poised/2649240.html

Macquarie, the second-most accurate forecaster for emerging-market Asian currencies in the latest Bloomberg rankings, strengthened its end-June projection for the rupiah to 12,600 a dollar this month, implying a 6.3 per cent gain from Tuesday’s close of 13,400. The window could be closing for Indonesian shoppers though, with the median estimate of analysts surveyed by Bloomberg showing a drop to 13,950 by the end of the year. Read more: http://www.afr.com/markets/currencies/indonesias-rupiah-has-room-to-rise-still-higher-20160329-gntok3#ixzz44gWGSlrz

 

DISCLAIMER: THIS SITE IS FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED ABOVE.